So i just wrapped up a listing appointment. This young lady had a 20 Year old pet grooming business. “Jane” leads off with telling my that we have spoken before and that i am the 4th business broker she has spoken to. I asked her what my colleagues gave her for valuations? She pulled out a sheet of paper with the valuations they had provided her. It ran from a 2.5 multiple at 186k to a low of half that…..90k.
So my three competitors all gave her 3 different responses and 3 totally different valuations.
So while she was in front of me i pulled out the laptop and pulled up the comps of similar businesses with similar revenues….and did her cash flow calculation of her tax return. She had a cash flow of 72,000 on 186,000 in revenue. The comps showed a 1.3 multiple to SDE or 93,600 valuation.
So one has to wonder what in the heck was up with people giving valuations of 1.5 to 2.5 multiples……well in short the game is take the listings and sweat the seller into the box….Do we blame the broker or the seller for this? I would tell you the seller is as much to blame as the broker. This seller was looking for a number to meet a need and not living in the real world. The brokers were stuck with an unrealistic seller and the hope to take the listing and push the seller to the right number.
I’m sure all of you have watched Shark Tank and seen the crazy valuation that sellers come up with for their businesses. Somehow, we can laugh at those crazy people but when it comes to our own businesses we are “special” and exempt from the valuation models.
For more on this topic go to my website at https://yourfloridabusinessbroker.com
Sellers should work to understand the valuation gap and not hire those who tell you what you want to hear but those who tell you the hard truth….because math is math and the valuation gap is deep!